Innovate or die
Open business models, FTW
Internal research and development (R&D) was once an important asset for companies, and a key component of business models. Patents could essentially serve as barriers to entry for competitors and allow companies to keep their resources all to themselves so that they could reap all the profits from their intellectual properties. Companies could then reinvest their profits into more R&D and start the virtuous cycle all over again. This closed model worked extremely well for a time, especially in the 20th century and especially for big companies.
But closed business models just don’t make sense anymore — the cost for research and development is rising, and patents are languishing. Companies that embrace an open business model find ways to be more effective and capture more value when they partner with different companies who possess “different assets, resources and market positions.” Best of all, as Henry W. Chesbrough writes in Why Companies Should Have Open Business Models, “with innovation markets, ideas can flow out of places where they do not fit and find homes in companies where they do.”
With all the benefits of open innovation, why wouldn’t a company want to adapt an open business model?
They’re disorganized. When it comes to business models, a lot of organizations are pretty disorganized. Many don’t have processes in place to revisit their existing business plans. Many don’t know who exactly is “in charge” of the business plan — is it the CEO, the Board of Directors, or this or that manager? The lack of definition and ownership over a business plan not only prevents open business model innovation, but it also prevents basically any innovation to a company’s business model.
They’re afraid to take risks. Change is scary. Companies may be, as Chesbrough states, “understandably hesitant to launch experiments that might risk the reputation of an established brand.” Not only that, but many companies are not willing to take a chance on innovation partnerships where the payoffs are not immediately obvious or may not be a sure thing. They want to make sure that profits are a sure thing, and if they are unwilling to take a risk with external partnerships or licensing agreements, they may miss out on exciting opportunities.
They’re not getting buy-in. For any business model to change, it has to get “buy in” from key players in an organization. Without it, innovation can’t move forward. There may be internal resistance from departments who face budget cuts, or groups within who are unable or unwilling to use their resources towards scaling up and out. Whatever the reason may be — opposition to change, fear of the unknown, unwillingness to share proprietary information — internal resistance can kill the open business model.
Companies that don’t innovate die. And in order to innovate effectively, Chesbrough argues in Open Business Models: How to Thrive In The New Innovation Landscape that companies must increasingly innovate openly. And to do so, companies must be willing to take the steps needed to innovate their business models in order to “let more external ideas and technology flow in from the outside and let more internal knowledge flow to the outside.”
